TMI Blog2005 (3) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... blish a hospital-cum-advanced diagnostic facility at Calcutta. The cost of the project would be about ₹ 11 crores out of which the share capital would be ₹ 9 crores and ₹ 8 crores out of the said share capital would be by way of NRI participation. Therefore, 88.88 per cent, cost of the project were NRI investments in shares and balance by resident Indians. 5. Dr. Kamal Kumar Dutta was one of the first directors of the said company and Dr. Binod Prasad Sinha held 52. 74 per cent, of the equity shares in the said company. Apart from that Dr. Dutta contributed ₹ 3 crores for the purpose of importing medical equipment and the shares towards the said investments, being the value of the equipment, should be allotted to Dr. Dutta. A loan was granted for a sum of ₹ 4.6 crores by the IDBI for the said project. The grievance of Dr. Dutta the said allotment was denied by one of the appellants herein Sajal Kumar Dutta, who is the younger brother of Dr. Dutta and he was brought in the company by Dr. Dutta. Shares were not allotted to Dr. Dutta on the ground that the equipment was second hand. Subsequently, shares were allotted to others denying the rights of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta High Court is known. No further shares will be allotted against the share application money with the company either in the names of the NRI investors or in the names of the respondent's group. 3. The petitioner/respondent is at liberty to invest more funds in cash in the company towards share capital but the same will be kept as share application money till the disposal of the High Court proceedings and subject to other approvals as may be necessary. 4. Since our object is to maintain the status quo till the disposal of the matter in the Calcutta High Court, there will be no change in the composition of board other than that the two petitioner directors will function as directors in addition to the existing directors. 10. The learned Company Law Board also expressed their views on behalf of role of the IDBI nominee in the board which are as follows (page 346 of 108 Comp Cas) : Thus, his role, instead of being constructive, led to the widening of the differences between the parties. Further, he also seems to have allowed allotment of shares without specific approval from the IDBI as is evident from the letter of IDBI at annexure K. Further, when the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and Dr. Binod Prasad Sinha. 15. He further submitted that on April 19,1995, the board meeting was held in which the resolution was passed to convene an extraordinary general meeting (hereinafter referred to as EOGM ) to pass resolution under Section 81(1A) of the said Act to issue and allot 40 lakhs equity shares of ₹ 10 each at par on the basis of private placement. Dr. Kamal Kumar Dutta was present at the said board meeting (minutes appearing at volume III, pages 1411-1415 of the paper book). He did not raise any dispute with regard to such meeting or such resolution. 16. He further contended that on February 16, 1996, the board meeting of the company was held (minutes appearing at volume I, pages 647-649) and Dr. Kamal Kumar Dutta and the nominee director of IDBI were also present. Admittedly, Dr. Dutta informed the board of directors that it was not possible for him to invest any further amounts in the company in the near future and as far as payment to the IDBI and meeting other financial commitments of the company were concerned and necessary funds were to be arranged by Sajal Kumar Dutta. 17. He further submitted that there is no contemporaneous compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds available with the company were only ₹ 4.65 lakhs. On February 9, 1996, the IDBI had already disbursed ₹ 455 lakhs out of the sanctioned loan amount of ₹ 460 lakhs. Bonus to the workers were paid, municipal taxes, TDS, PF payments were due on that date. On February 16, 1996, the bank balance of the company was 2.21 lakhs. On February 16, 1996, the board mewing was held and the IDBI nominee wanted to know the repayment schedule for the outstanding dues to the IDBI. Dr. Dutta refused to invest further funds and on March 12, 1996, again the board meeting was held and the nominee of the IDBI was present and Sajal Kumar Dutta stated that due to inadequate generation of funds the company was unable to clear the dues of the IDBI since October, 1995. On March 14, 1996, the IDBI issued letter recording default of payment of interest and asked for payment. On March 26, 1996, ₹ 21 lakhs was paid to the IDBI by the company and in fact ₹ 22 lakhs were brought in by Sajal Kumar Dutta. Dr. Dutta never disputed the said fact. On March 31, 1996, it would show from the annual accounts that there was a loss of ₹ 115 lakhs. A huge outstanding to the suppliers ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with regard to the said first allotment and further he is estopped from questioning it in any manner whatsoever and placed reliance on the decisions reported in Mahadeo Nath v. Smt. Meena Devi, AIR1976All64 ; Hamida Bi v. Abdul Gaffar [1933] AIR 1933 Rangoon 147 and Salil Dutta v. T. M. and M. C. Private Ltd. [1993]1SCR794 . 27. He further contended that before the said letter dated April 30, 1996, was issued by reason of the allotment of shares on March, 12, 1996, Sajal Kumar Dutta and his group became a majority. Therefore, the finding of the Company Law Board that everything happened after the letter dated April 30, 1996, is not correct (internal page 21, para. 23 of the Company Law Board's judgment). 28. He further submitted that all the complaints made by Dr. Kamal Kumar Dutta in respect of fabrication, manipulation, ouster of Dr. Dutta are with regard to acts which have occurred in July/August, 1996. Therefore, there cannot be any complaint with regard to issue and allotment of shares on March 12, 1996. 29. According to him in any event issue and allotment of shares were made for the benefit of the company. There is no finding of the Company Law Board th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shareholders as on March 31, 1995, was as follows : Sl. No. Name No. of shares Percentage 1. Dr. K. K. Dutta 4,55,650 46.378 2. Dr. Binod Sinha 62,540 6.365 3. Dr. A. K. Maulik 10 0.001 4. Mrs. Pari Dutta 2,180 0.222 5. Mr. Sajal Dutta 60 0.006 6. XL Enterprises Pvt. Ltd. 75,000 7.634 (company owned by Mr. Sajal Dutta) 3,87,030 39.394 7. XL Fashions Pvt. Ltd. (company owned by Mr. Sajal Dutta) Total 9,82,470 100.00 32. Therefore, it would be evident from the admitted position of Dr. Dutta in their first petition before the Company Law Board dated November 22, 1997, stated that Sajal Kumar Dutta and his group companies are the single largest shareholder group in the company. He further submitted that Dr. Binod Prasad Sinha never took any active interest and never participated in the management of the said company. He has neither signed the loan agreement with the IDBI on behalf of the company nor given any personal guarantee in respect of the loan. He never attended any board meeting or any general meeting nor gave any proxies which would show admittedly that he is a dormant shareholder. 33. Therefore, according to Mr. Sen, admitted position at the material time whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the capital of the company by Dr. Dutta and his associate does not and cannot arise at all. According to Dr. Dutta, ₹ 1 crore was invested in the company by him and his associate and no shares have been issued in respect of the said sum of ₹ 1 crore. Hence, the question of further investment by him and his group did not and could not arise. The Company Law Board dealt with the matter and has observed as follows (page 336 of 108 Comp Cas) : It is to be noted that by the time when the further allotments were made, the NRI cash contribution with the company was about ₹ 1 crore including shares and share application money ... (appearing at volume III, page 1543 of the paper book) 36. He further submitted that the admitted case of Dr. Dutta is that as on August 5, 1997, the total remittance received from NRIs was ₹ 100,63,730 (Rs. 1 crore). Shares already issued were ₹ 51,81,900 (Rs. 51 lakhs) and balance in share application account was ₹ 48,81,830 (Rs. 49 lakhs). Dr. Dutta by filing an application before the Company Law Board held that the said application would be heard along with the main matter and in the said final order the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clearing of its outstanding dues and the board discussed that further funds are required. Thereafter, Dr. Dutta stated that he will not be able to invest any further funds in the company and Sajal Kumar Dutta, as managing director has to make necessary investments. 40. The allegation of Dr. Dutta is that the minutes of the board meeting dated February 16, 1996, was fabricated and manipulated cannot be accepted since there is no specific denial of the fact that Dr. Dutta was present and the Company Law Board finding that petitioner admits that he attended the meeting . No challenge to this finding by Dr. Dutta : There is no specific denial that he had refused to invest further funds ; there is no contemporaneous letter/allegation by Dr. Dutta that the minutes of the meeting dated February 16, 1996, were fabricated ; subsequent to February 16, 1996, Dr. Dutta never corresponded with the company on any matter including the investment of further amounts ; Dr. Dutta has not indicated what according to them is the true version of what transpired at the said board meeting. 41. Mr. Sen further drew my attention to the pleadings of Dr. Dutta filed before the Company Law Board a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing held on April 23,1997, vacation of office of Dr. Dutta and Dr. Sinha were noted. 43. He further contended that the cessation of office of Dr. Kamal Kumar Dutta as a director, Dr. Dutta contended that he has attended some board meetings of the company even after February 9, 1996. He attended the board meeting on February 16, 1996. He did not take any steps to comply with the statutory requirements of holding the board meetings of the company every quarter nor even appointed an alternate director and the board meeting held on March 3, 1997, has not been recognised by the IDBI which would be evident from the document dated March 3, 1997, addressed by the IDBI (appearing at page 237 of volume I of the paper book). The board meeting of the company held on April 23, 1997 (appearing at page 240, volume I of the paper book) would be evident from the records. 44. Mr. Sen further submitted that although Dr. Dutta has disputed his cessation of office since April 4, 1997, but he took no steps to redress his grievances by legal proceedings contemporaneously. Form No. 32 was also filed regarding cessation of office by Dr. Dutta as a director under Section 283(1)(g) of the said Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47.03 per cent, and Dr. Dutta has 46.38 per cent, who are very close to each other in terms of shareholding in the company and therefore, taken up a case of majority being converted into minority cannot be accepted and further submitted that in any event no case of mismanagement and/or apprehended mismanagement has been made out by Dr. Dutta nor is there any finding by the Company Law Board in this regard. According to him, Section 398(1)(b) of the said Act can only be applicable when any material change has taken place in management and by reason of such a change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or the interest of the company. The said condition has to be satisfied before Section 398(1)(b) of the said Act is applicable and accordingly, Mr. Sen submitted that during the control of Dr. Dutta the company was making a loss of ₹ 9.50 lakhs per month and loss for the year 1995-96 was ₹ 115 lakhs and the turnover was only ₹ 102 lakhs and subsequently after Sajal Kumar Dutta took over as managing director, the company was benefited and the company wiped out its losses incurred during the tenure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted his brother Sajal Kumar Dutta to assist in the administration of the hospital. Further, Dr. Dutta submitted before the Company Law Board that the company is liable to be wound up . Further, Dr. Dutta wrote to KPMG behind the back of the company and other appellants with the express purpose that the company does not get ISO certification. Dr. Dutta complained to the Department of Company Affairs behind the back of the company and other appellant with the intention to harass the company as to why board meetings are not held when he was fully aware of the High Court order dated April 7, 2000, that the company cannot hold board meetings. Dr. Dutta's statement before the DRT asking the IDBI to proceed against the borrower and dispose of the assets of the company worth ₹ 10 crores would show that he has acted to prejudice the interest of the company. 50. Mr. Sen further submitted that notice of the meeting dated March 3, 1997, including an agenda would show that Dr. Dutta took a joint effort with Arun Saini, Mr. Surendra Joshi, Brig. R. K. Rakshit and others to oust Sajal Kumar Dutta and to take control of the company. Hence, Mr. Sen submitted that the court will als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 10F of the said Act is restricted only to questions of law inasmuch as the substantial findings in the Company Law Board order are findings of fact, such findings cannot be questioned in the appeal. 55. Therefore, he submitted that the scope of this appeal is restricted to the followings : (a) allotment of shares by company to Sajal Kumar Dutta ; (b) Dr. Dutta and Dr. Sinha were shown to have vacated their office of directorship under Section 283(1)(g) of the said Act; (c) refusal of the company to allot shares towards the value of the imported second hand equipment supplied by Dr. Kamal Dutta, the petitioner. 56. According to Mr. Sarkar, Section 81(1)(a) of the said Act stipulates offer to existing shareholders as condition precedent for increase of subscribed capital with exception by passing special resolution in general meeting. According to Sajal Kumar Dutta and others, a special resolution was passed in extraordinary general meeting held on February 17,1996, in pursuance of a notice dated January 24, 1996. According to Mr. Sarkar, no extraordinary general meeting was ever held and records were fabricated and/or manipulated for the purpose to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Sajal Kumar Dutta have been sent to the Calcutta address which was also admitted by them. The said notice was issued only to Dr. Dutta and excluding other directors of the company. 59. He further submitted that all the findings of facts by the Company Law Board are in favour of the petitioners, but the final relief has been denied only inasmuch as a writ petition was pending before this hon'ble court. He further submitted that there was no embargo by reason of the pendency of the proceedings for the Company Law Board to pass final reliefs that were commensurate with the findings contained in the order. 60. Once it had been established that the petitioners have been wrongfully reduced from the majority position to minority, the petitioners were entitled to relief. He further contended that the board meetings convened purportedly to be shown in the absence of the petitioners, such board meetings have been found to be invalid. Once such a finding was reached, the consequential relief ought to have followed. All transactions at such invalid board meetings were required to be held null and void. The issuance of additional shares were required to be declared null and vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UPC does not conclusively prove that notice was despatched to or received by the addressee. He further relied upon a decision reported in Ramashankar Prosad v. Sindri Iron Foundry P. Ltd., AIR1966Cal512 , and contended that for the proposition that it is inconceivable that a person would commit harakiri by agreeing to be reduced to minority upon allotment of shares to a rival group. Relying on a decision reported in Gluco Series P. Ltd., In re MANU/WB/0093/1984) he also submitted that for the proposition that allotment of shares to convert the majority shareholders into minority is per se oppression. In such a case the impugned allotment can be cancelled. The Board put in place by the oppressor group can be superseded and a general meeting can be called after the cancellation of the impugned shares for the purpose of electing new directors. He also relied upon a decision reported in Tea Brokers P. Ltd. v. Hemendra Prasad Barooah [1998] 5 Comp LJ 463 (Cal) and contended that for the proposition that the original majority shareholders should generally be given the right to buy out the minority shareholders with a view to bring to an end the matters complained of and so the two worryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airplay in corporate management. 64. Mr. Sarkar further submitted that without there being a finding that a case had been made for just and equitable winding up of the company, the matter could not be proceeded with further, nor could orders be passed in Section 397/398 proceedings. This cannot be accepted at this stage since only Section 397 of the said Act contemplates a finding of just and equitable ground for winding up the company. Section 398 of the said Act does not contemplate. Further, it would be evident from Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri MANU/WB/0256/2000) that it is not always necessary to take express finding that it was just and equitable for the company to wind up. In any event, there has been substantial compliance with such requirement of Section 397 of the said Act by the Company Law Board and the grievance of Dr. Kamal Kumar Dutta was that material changes have been brought about in the company which was prejudicial to the company's interest and prejudicial to the shareholders of the company. It has been found as a matter of fact, that by virtue of the allotment of shares, material changes had been brought about. As a result of the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spital of the company does not suffer any further prejudice. It is also submitted that the petitioners being doctors are better equipped to run the hospital of the company. 68. I have considered the facts and circumstances of this case. I have also analysed the decisions cited by learned Counsel for the parties. After scanning the facts of this case it appears to me that the Company Law Board dealt with the grievance made by the petitioner before the Company Law Board and the oppression as has been stated by the petitioner before the Board which are (a) removal of the petitioners from the directorship ; (b) by allotment of shares to the Sajal Kumar Dutta's group and thereby making the said group as majority shareholders of the company; (c) further that no notice to hold meetings were served on Dr. Kamal Kumar Dutta and Dr. Sinha and the resolution passed in the extraordinary general meeting held on February 17, 1996, and board meetings held on March 12, 1996, and July 24, 1996, and the resolutions passed in the said meetings of the board were bad ; and (d) no notice for the board meetings were received by the petitioners as directors. 69. Further grievance has been ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns in the board meetings including that of allotment of shares in the absence of valid notice to the petitioner directors could not be considered as valid and binding and that there is substantial evidence to show that at least up to March, 1996, most of the imported equipment was in working condition and that the conduct of the respondent/directors had been unfair to and biased against the petitioner and exhibits lack of probity. and after taking into consideration all the aspects the Company Law Board passed an order in the matter. But it appears to me after carefully scrutinising the judgment of the Company Law Board that there is no finding at all that a just and equitable winding up would unfairly prejudice Dr. Dutta or his group. I feel that it was the duty of the Company Law Board in dealing with a matter under Section 397/398 of the Companies Act to see that a petitioner has to become successful under Section 397 he has to make out a case for winding up of the company on just and equitable ground and further if any order for winding up is made by the court it will prejudice the petitioner and in that case an order under Section 397/398 can be passed. If the said case cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ramashankar Prosad v. Sindri Iron Foundry P. Ltd., MANU/WB/0104/1966 : AIR1966Cal512 , where the court came to the conclusion that there was chance of the company being run normally by the directors appointed by shareholders in the ordinary course of things and further the court came to the conclusion that the company would have been wound up under just and equitable clause and in such circumstances, court passed an order in that matter. 76. In Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 All ER 66 : [1959] 29 Comp Cas 1 (HL), the court came to the conclusion that on the facts aggrieved petitioners were substantial shareholders who were reduced to a position of worthlessness because of the misdeeds of the holding company and those who control it. A winding up of a subsidiary would serve no purpose, as upon winding up, the aggrieved shareholders would get a mere nothing. 77. In the case of Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. MANU/SC/0050/1981 : [1981]3SCR698 , where the hon'ble Supreme Court has held that before granting a relief under Section 397 the court has to satisfy itself that to wind up the company w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that would prejudice Dr. Dutta. On the contrary, from the facts it appears to me that Dr. Dutta before the Debts Recovery Tribunal and further behind the back of the company acted in such a manner which would show and would be evident that Dr. Dutta acted prejudicial to the interest of the company. The court cannot shut its eyes even on those facts. Since I am of the opinion that the petitioner has failed to fulfil the pre-conditions to have an order under Section 397/398 and the Company Law Board did not deal with the matter at all, I do not have any hesitation to set aside the order passed by the Company Law Board. I also express my opinion following the decision of the Division Bench of our High Court in Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri MANU/WB/0256/2000) that the termination of the directorship, even by suppression of notice, or termination of directorship by a show of majority, would not entitle the terminated person to petition for just and equitable winding up is, that there is an appropriate remedy by way of a company suit, which can give the terminated director every relief. If notice has been suppressed, he can file a suit for injunction and declaration and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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